DEFINITION

(A)      Rental Income

Income earned by a person from letting out property on commercial terms.

(B)      Landlord OR Landlady

This is the person who lets out property to another person (the Tenant) for a consideration.

A landlord may take the form of:
•  An individual e.g. Mathew Etima
•  A corporate body e.g. Properties (U) Ltd.
•  Government e.g. Luwero District Administration
•  An institution e.g. Makerere University, UWESO, etc

(C) Tenant

This is the person who occupies another person’s property   on   commercial   terms  and pays a consideration.

INDIVIDUAL RENTAL INCOME

Taxation of individual rental income is separately provided for under  the Income Tax Act, 1997. This is rent earned by individuals.  Company rental income is taxed under the ordinary income tax system together with other corporate income.

The law provides that individual rental income is segregated and taxed separately as though it were the only source of income for the taxpayer.

COMPUTATION OF TAX

Note:
Four main features associated with the computation of individual rental income tax.

 All rents earned during the year are put together.

 A flat percentage rate of the total rents is granted annually as a deduction for cost to arrive at net rents.

 A  threshold (a tax free allowance) is granted annually  against   the net rents  after a deduction for costs to arrive at net chargeable rents.

  A fixed tax rate is applied to the net chargeable rents   to determine the tax payable.

CURRENTLY

(a)       Allowance for costs is 20 percent of the gross rents.

(b)       Threshold is Shs. 1,560,000 per annum  

(c )      Fixed   rate  of  tax  is  20  percent  after  deducting
(a) and (b) above.

FORMULA

Individual Rental Income Tax = 20% (80% of Gross rents per annum minus threshold).

IMPORTANT STEPS

Step I:	Determine the total annual gross rents from all sources of the individual; say R;
Step II:	Deduct 20 percent allowance for costs i.e. R – 20% R = 80%R
Step III:	Deduct threshold (Shs.1,560,000) i.e. 80%R – 1,560,000
Step IV:	Determine income tax at 20%       i.e. 20% (80%R – 1,560,000).

ILLUSTRATIONS: (3 Scenarios)

Scenario 1:	Gross  rents  not  exceeding Shs.1,560,000 per annum: Tax is NIL since gross rent does not exceed threshold.
Scenario 2:	Gross rents say, Shs.1,800,000 per annum; Allow 20% costs Therefore 1,800,000 – 360,000   Net Rents = 1,440,000  Since net rent DOES NOT exceed threshold, tax is NIL.
Scenario 3:	Gross rents say, Shs.3,000,000 per annum.

Step I:                       
Allow 20% Costs
3,000,000 – ( 20 x 3,000,000)
                       100
= 3,000,000 – 600,000
Net rents = 2,400,000.

Step II:                     
Allow Threshold:
2,400,000 – 1,560,000
Net chargeable rent
= 840,000 (in excess of threshold)

Step III:       
Calculate tax at 20%
20x 840,000
100
Rental Income Tax = 168,000

Therefore, an individual whose GROSS OR NET rent per annum
DOES NOT EXCEED the threshold pays NIL rental income tax.

TAXPAYER’S OBLIGATION

 Complete a return of Rental Income for a year of income with  supporting  agreements  where available, or rental receipts issued to tenant(s) during the year.

 Declare  ALL  your  sources of  rental  income in FULL for a given year  of income. The  year of income is  from  1st July  to  30th June.

 Submit   (furnish)   the   final  return,   ANNUALLY  to Uganda Revenue   Authority, through your local Domestic Taxes Office, within SIX months after the end of the relevant year of        income. i.e. not later than 31st December.

 Pay the rental income tax by the due date.

ENTITLEMENT TO TAX CREDIT

The taxpayer is entitled to a tax credit in respect of any rental tax paid provisionally or tax withheld during the year of Income. This  however  can  only  be  offset against  rental  tax  liability  since  rental income is taxed separately.

DISCLAIMER: This Information is strictly for purposes of guidance to our clientele and is subject to change on amendment of tax legislations & any other regulations that govern tax administration.